Tobacco Industry in Pakistan
A SWOT Analysis
The Tobacco Industry
The tobacco industry is a source of revenues, employment and foreign exchange for the country. The industry has to pay very high excise and sales tax while complying with various strict rules and regulations of the government. During 2004-2005, it contributed above Rs. 28 billion as Central Excise Duty and Sales Tax. Despite its contribution to the economy, the industry is highly criticized for its negative impacts on the society. Structure of Industry:
In Pakistan the industry consists of:
* Farmers who grow tobacco.
* Firms that convert the raw materials into finished goods (Cigarettes). * Exporters and importers of tobacco and its products.
Size and number of sellers:
In Pakistan, tobacco cultivation occupies a relatively small area of 0.27% of the total irrigated land. The country has been divided into various zones depending on the type of tobacco being grown in that region. The major firms involved in the manufacture of finished goods and exports include ten players: * Pakistan Tobacco Company
* Lakson Tobacco Company
* Souvenir Tobacco Company
* Saleem Cigarette Industry
* Universal Tobacco Company
* Imperial Cigarette Industry
* Khyber Tobacco Company
* International Cigarette Industry
* Walton Tobacco Company
* Sarhad Cigarette Industry
Of these firms Pakistan Tobacco Company is the market leader with Lakson Tobacco Company in second place. Number of buyers:
The firms that manufacture finished goods act as purchasers themselves, buying tobacco from the farmers, they serve as intermediaries that purchase, process and resell. In the local market, Twenty-nine percent of men and 3.4% of women smoke cigarettes regularly, concluded the National Health Survey, while the Pakistan Society of Cancer Prevention says 37% of men and 4% of women over 15 years of age are smokers. According to Pakistan Pediatric Association, 1,000 to 1,200 children between the ages of 6 and 16 years take up smoking every day. Cigarette consumption in Pakistan is five times higher than in India, 620 cigarettes per adult per annum against 119 for India. This shows that the market for tobacco industry is very immense locally. Chewing tobacco is in demand in the villages. Along side this; various countries are also acting as buyers for the tobacco industry. Product differentiation:
The major product differentiation exists between chewing tobacco and cigarettes and cigars. The main differentiation exists between the manufactured goods in the form of branded cigarettes. The firms target different segments of the society with different price levels. Differentiation also exists between imported and local cigarettes and cigars. Consumers are willing to pay a premium price for imported products especially cigars. Entry conditions and government regulations:
There are no entry conditions as such but when a company enters the industry, it has to abide by all the rules and regulations of government. This is very costly especially in terms of advertising. The firms have to inform the consumers about the potential health hazards related to tobacco products. This implies that in order to enter as a manufacturer, heavy investment is required. The government is providing incentives to the tobacco growers in order to promote the industry. This is being done through the Pakistan tobacco board. The board tries to find out their problems and to educate them about the cultural operations, plant protection measures, picking and curing operations. Other responsibilities of the board are to regulate, control and promote the export of tobacco and tobacco products, and to fix grading standards. The board is also helping in the research and development to improve the quality. It looks after the interests of the industry. Demand and supply:
The tobacco board also manages the demand and supply in the industry. According to legal requirements, the...
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